Navigant Research Blog

Daimler Bets on Battery Leasing

Scott Shepard — May 9, 2013

The advanced lithium ion battery in a plug-in electric vehicle (PEV) accounts for as much as one-third of the vehicle’s cost. Without government incentives, PEV premiums can top $10,000 over a similar conventional gas-powered vehicle. Even with lucrative government incentives, EVs are still a hard sell. However, automakers are diligently working out ways to bring purchase costs down so that potential owners can absorb the PEV initial purchase costs over time.

In Europe, automakers Renault, Daimler, and Mia Electrique have pioneered the battery lease option, whereby PEV owners buy the vehicle but lease the battery for a monthly fee. In the states, automakers have not warmed to the idea, instead offering cheap lease deals with low signing dues. That could change, beginning when Daimler deploys its smart fortwo ED to the United States next month with a battery lease option.

In Europe, the battery-leasing option for the fortwo ED reduces the vehicle’s purchase price by over $6,700, but requires the vehicle owner to pay roughly $83 a month for the battery. In other words, the purchase price discount accounts for about 80 monthly payments. Under the lease agreement, Daimler, which retains ownership of the battery, ensures its life, thus easing concerns PEV owners may have over battery longevity. Theoretically this option also enables Daimler to find additional value from the batteries by reusing them for stationary energy storage applications once they’ve been removed from the vehicle. The appeal of the offer is clear, as around 97% of the fortwo EDs bought or leased in Europe have included this option.

Swap It Out

Battery leasing has also been pursued by battery swap developers like Better Place which has deployed more than 50 battery swap stations for national networks in Israel and Denmark, and the State Grid Corporation of China (SGCC), which has more than 200 battery swap stations in various Chinese cities. These two companies take the battery lease concept a step further by literally separating the battery from the vehicle. Their business models require both companies to keep excess batteries on hand to supply customers. This allows them to generate additional revenues from the unattached batteries through grid-tied energy storage services.

The major challenge to the battery swap business model is that each company needs automakers to develop vehicles compatible with their systems, and few have. Renault has built the Fluence Z.E. to be compatible with Better Place’s system, while Chinese automakers Kandi Technologies, Zotye, and Zap Jonway are building or have built PEVs compatible with the SGCC system.

The terms of Daimler’s battery lease option for the states have not yet been released. Even without the option, the fortwo ED will be the lowest-priced highway-capable PEV available in the United States, with a $25,750 MSRP before federal and state incentives. When coupled with government incentives and the lease option, the fortwo ED will have a significant impact on the world’s strongest market for PEVs.

If the lease is as enticing in Europe as it is in the states, then other automakers will take note and more battery lease options for PEVs will follow. Nissan has already announced it is entering the fray as it plans to sell the LEAF with a battery lease option in the United Kingdom this year. As automakers become more comfortable with the idea of battery leasing, they will also become more comfortable with developing vehicles that are battery swap-capable, allowing a third party like Better Place to manage the battery liabilities, lease arrangements, and the recycling.

Thanks for your post. I agree the market for battery swapping is not strong. Given that, there are a few proponents outside of Better Place.

China Southern Grid and the State Grid Corporation of China that have two EV models from Zotye and Kandi Technologies that are currently using their battery swap systems. A model developed by Zap Jonway has also been certified for the SGCC system. Additionally a small project in Austria and Slovakia to connect Vienna and Bratislava called Project Greenway has developed both a battery swap system and compatible light commercial vehicles.

The major differences between these developments and Better Place is that the above are primarily directed towards fleet vehicles (taxis, commercial vans, etc.).

For the individual consumer market, yes, battery swaps are more likely to succeed in “islands” at least for the for-see-able future.

However, as emerging technologies and energy markets develop that generate additional value from the energy storage potential of both in-service and retired EV batteries, the prospects of battery swapping become greater for both the vehicle developer, battery swapper, and EV owner. This is, however, not a near term opportunity for most markets, especially the United States.

Your skepticism is well founded – most vehicle developers aren’t likely to cooperate with battery swap proponents and the cost/benefit to the consumer has to exceed current EV opportunities, which is hard to imagine.

It likely will only ever be a limited option in the few niche markets we have identified above unless battery swappers can prove a business case that profits all parties over the existing infrastructure paradigm.

Scott,
Thanks for the insightful article. The leasing model is showing a great deal of strength in the PV industry where the initial upfront capital requirements are similar in nature to EVs & PHEVs due to the high cost of the battery pack. Better Place’s former CEO and founder, Shai Agassi’s insight that you’re not required to buy an oil well to drive a conventional ICE car, applied to leasing the battery pack is key to driving down the initial cost of EVs. There are many limitations now in the application of that idea (low volumes, few locations, lack of standards, etc), but as manufacturers continue to look for ways to creatively lower the initial purchase price, you’ll likely see many “flavors” of the battery leasing/swapping idea tried.